Intel has signed a co-investment agreement for up to US$30 billion with Canadian investment company Brookfield Asset Management to fund its semiconductor expansion efforts in Arizona.
The semiconductor giant said in the press release that this agreement will increase the company’s pool of capital for manufacturing build-outs and accelerate its IDM 2.0 strategy. This agreement will see Intel provide 51 per cent of the funds for its Ocotillo campus in Chandler, Arizona, with Brookfield supplying the other 49 per cent. More importantly, this agreement sets a precedent for Intel to replicate the model with future partners.
The transaction with Brookfield is expected to close by the end of 2022. Over the next three years, Intel expects the agreement to provide a US$15 billion cumulative benefit to Intel’s adjusted free cash flow.
This agreement, which the company has dubbed the Semiconductor Co-investment Program (SCIP), represents a first for Intel. The company described the method as a key element of its Smart Capital Approach that sources funds from a multitude of channels.
But the Smart Capital Approach encompasses more than building partnerships. Its blueprint also entails increasing capacity investments, garnering government incentives, enhancing its new Intel Foundry service, and working with external foundries.
Reviving domestic production
According to the Semiconductor Industry Association, the share of modern semiconductor production in the U.S. has decreased from 37 per cent in 1990 to just 12 per cent in 2022. This loss was partially attributed to the low level of investments from the government. As tension builds between the world’s powers and the chip shortage is still hammering industries, securing the semiconductor supply chain has become a priority for all nations.
Responding to the urgency, the U.S. government announced the CHIPS and Science Act in 2022, which promised US$52 billion in subsidies for its semiconductor industry. Following the CHIPS Act, the government also introduced the Facilitating American-Built Semiconductors (FABS) Act, which proposes a 25 per cent semiconductor investment tax credit that includes investment in the tooling required for manufacturing. Its name is also in reference to semiconductor fabrication plants, commonly called fabs.
Intel itself has been making a slew of investments. In January, the company announced plans to build a US$100 billion fab complex consisting of eight chip factories in Albany, Ohio, calling it the largest private sector investment ever made in the state. Additionally, the company has committed US$89 billion to build semiconductor production and research facilities in Germany, France, Ireland, Poland and Spain.